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If there was one part of my legal practice that I ran from screaming, it was real estate. Luckily, we had a real estate department, so I was usually clear. But in doing due diligence for several IPOs in industries that had been "rolled up," the horrible "unclear title" problem reared its ugly head. And once title is messed up, it is extremely time-consuming to fix, even if no one is disputing who really owns the property. However, when property has changed hands several times, sometimes between related entities, the property records may show title held in the wrong entity, sometimes an entity that is no longer with us. And it is all ugly.

Well, apparently, securitization of mortgages is sort of like rolling up a whole bunch of entities into one. And apparently, title gets messed up there as well, with the proper lien holder of record being somewhat murky at the end of the day. Why does this matter? It matters if these lien holders want to foreclose. And apparently, nationwide, lenders are figuring out when trying to foreclose that somewhere along the line, some mistakes were made in great haste either to securitize the mortgage or to foreclose on the mortgage, and the "owner" of the mortgage is not who wants to foreclose on the property.

This article tries to sum up the growing problem, but lumps together all types of paperwork problems. First, there seems to be a problem whereby certain company employees are supposed to sign foreclosure documents after looking at all relevant documents. Now, we know that this work may have been farmed out so that the people signing didn't have enough time in their natural life to actually look over the documents they were supposed to before signing. Second, some signatures are supposed to be notarized. But, the notary stamps seem to predate the signing and/or seem to have been executed in a completely different part of the country simultaneously with the witnessed signature. Third, some signatures of corporate officers appear to have been forged due to the fact that they are written differently at different times. Fourth, the paperwork seems to be sloppy in naming the proper lien holder, with multiple banks believing that they own the mortgage.

These are different types of problems, but they may all result in at least the same short-term remedy: no foreclosure, or possibly even reversal of a foreclosure. Now, in law school, I loved the (very few) times in the law where someone gets something for nothing out of luck. I liked it when the squatter won, and when you get the pregnant cow. But even I have some pause here.

Particularly for the first three. None of this "signature abuse" cases reflect on whether the borrower had defaulted on the underlying mortgage. They reflect sloppiness and cutting corners, and shed light on the strange practice of notarizing signatures: real estate law seems to think this the notarized signature brings great authenticity and value to memorializing important documents, but I can hire an employee to be a notary and attest to all my signed documents. I doubt these problems will result in borrowers getting free houses. These problems can be fixed, even if the process starts over. Borrowers may get another 3-6 months in home with no payments, though, and you can't beat that with a stick.

The fourth is tricky. As Adam Levitin blogged before, clouded title has a particularly bad ripple effect. When title searches yield names of wrong record holders, this can be cured by filing affidavits with accurate facts. In these cases, we may be finding that these affidavits are being spun out in record numbers to quickly paper over discrepancies, but the affidavits may not be correct. If the home is foreclosed upon and sold to another buyer, then that buyer has bad title. If the sale had title insurance, then hopefully someone would have picked up on that problem and alerted the potential buyer, but otherwise the problem continues. And what about the first homeowner? On the one hand, as Adam puts it, if you aren't the owner of the mortgage, you don't have the right to kick the homeowner out, but does a homeowner who doesn't pay a mortgage for months and months have the right to stay?

Probably the most debated rule in criminal law, (or at least on Law & Order), is the exclusionary rule. Yes, the criminal defendant gets a "windfall," but the rule is meant to deter and discipline law enforcement who may be otherwise motivated to cut constitutional corners. This question seems a lot like the exclusionary rule. This quote from the NYT article is from an attorney representing a homeowner: "This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me."

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If there was one part of my legal practice that I ran from screaming, it was real estate. Luckily, we had a real estate department, so I was usually clear. But in doing due diligence for several IPOs in industries that had been "rolled up," the horrible "unclear title" problem reared its ugly head. And once title is messed up, it is extremely time-consuming to fix, even if no one is disputing who really owns the property. However, when property has changed hands several times, sometimes between related entities, the property records may show title held in the wrong entity, sometimes an entity that is no longer with us. And it is all ugly.

Well, apparently, securitization of mortgages is sort of like rolling up a whole bunch of entities into one. And apparently, title gets messed up there as well, with the proper lien holder of record being somewhat murky at the end of the day. Why does this matter? It matters if these lien holders want to foreclose. And apparently, nationwide, lenders are figuring out when trying to foreclose that somewhere along the line, some mistakes were made in great haste either to securitize the mortgage or to foreclose on the mortgage, and the "owner" of the mortgage is not who wants to foreclose on the property.

This article tries to sum up the growing problem, but lumps together all types of paperwork problems. First, there seems to be a problem whereby certain company employees are supposed to sign foreclosure documents after looking at all relevant documents. Now, we know that this work may have been farmed out so that the people signing didn't have enough time in their natural life to actually look over the documents they were supposed to before signing. Second, some signatures are supposed to be notarized. But, the notary stamps seem to predate the signing and/or seem to have been executed in a completely different part of the country simultaneously with the witnessed signature. Third, some signatures of corporate officers appear to have been forged due to the fact that they are written differently at different times. Fourth, the paperwork seems to be sloppy in naming the proper lien holder, with multiple banks believing that they own the mortgage.

These are different types of problems, but they may all result in at least the same short-term remedy: no foreclosure, or possibly even reversal of a foreclosure. Now, in law school, I loved the (very few) times in the law where someone gets something for nothing out of luck. I liked it when the squatter won, and when you get the pregnant cow. But even I have some pause here.

Particularly for the first three. None of this "signature abuse" cases reflect on whether the borrower had defaulted on the underlying mortgage. They reflect sloppiness and cutting corners, and shed light on the strange practice of notarizing signatures: real estate law seems to think this the notarized signature brings great authenticity and value to memorializing important documents, but I can hire an employee to be a notary and attest to all my signed documents. I doubt these problems will result in borrowers getting free houses. These problems can be fixed, even if the process starts over. Borrowers may get another 3-6 months in home with no payments, though, and you can't beat that with a stick.

The fourth is tricky. As Adam Levitin blogged before, clouded title has a particularly bad ripple effect. When title searches yield names of wrong record holders, this can be cured by filing affidavits with accurate facts. In these cases, we may be finding that these affidavits are being spun out in record numbers to quickly paper over discrepancies, but the affidavits may not be correct. If the home is foreclosed upon and sold to another buyer, then that buyer has bad title. If the sale had title insurance, then hopefully someone would have picked up on that problem and alerted the potential buyer, but otherwise the problem continues. And what about the first homeowner? On the one hand, as Adam puts it, if you aren't the owner of the mortgage, you don't have the right to kick the homeowner out, but does a homeowner who doesn't pay a mortgage for months and months have the right to stay?

Probably the most debated rule in criminal law, (or at least on Law & Order), is the exclusionary rule. Yes, the criminal defendant gets a "windfall," but the rule is meant to deter and discipline law enforcement who may be otherwise motivated to cut constitutional corners. This question seems a lot like the exclusionary rule. This quote from the NYT article is from an attorney representing a homeowner: "This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me."

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